Area growers may have to go to open market to fill contracts

Published 6:45 am, Sunday, August 7, 2011

This cornfield north of Plainview dies early after water was diverted to another crop.

This cornfield north of Plainview dies early after water was diverted to another crop.

Photo: Richard Porter/Plainview Herald

Area growers may have to go to open market to fill contracts

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A common thread running through conversations as area grain experts discuss the 2011 crop year is that the grain industry is having to throw out the rule book this year.

One example of that, according to Texas Corn Producers Board Executive Director David Gibson, is concern over what will happen if producers can't meet their contracts for this year.

That has become an issue as the result of extremely poor growing conditions throughout much of the nation's agricultural belt. In particular, the ongoing drought in Texas and neighboring states has led to the abandonment of some crops and the realization that what remains won't yield much. The problem is that losses are so widespread that farmers may not be able to rely on production from another region if something happens to their crop.

Gibson said water probably will be diverted from 30 percent of the corn crop on the High Plains, with a corresponding loss of production.

Kevin Igo, owner of several area ag businesses, including Plainview Farm Chemical, explained the dilemma growers and elevator operators are facing.

In his service area, growers are looking at up to a 50 percent reduction in corn production from the previous year - from 13,000-14,000 pounds per acre to about 7,000 pounds.

Additionally, Igo added, his growers have abandoned 30-40 percent of their crops because they simply haven't received any rain and don't have enough water to irrigate them adequately in the excessive heat that has accompanied the dry weather.

Unfortunately, he said, some of those acres were contracted ahead of the season.

Igo said some companies have what is referred to as an "act of God" clause that releases producers and elevators from contracts if there is some reason beyond their control - such as a crippling drought - for why they could not deliver the grain.

However, he continued, in many cases producers sign "contracts to deliver," which means if they agreed to deliver 1,000 bushels of corn they have to come up with 1,000 bushels of corn. If for some reason they can only produce 600 bushels, they somehow still have to come up with the remaining 400 bushels.

Igo said short of coming to an acceptable agreement, a grower's only real alternative is to go onto the open market and buy corn that has not been sold through a contract out of his own pocket.

This year, however, as reserves dwindle and more farmers find they are unable to produce the grain they anticipated, prices are climbing for what remains.

Igo pointed out that if a producer contracted his corn for $6 and has to pay $8 to buy replacement corn on the market, that is going to be a big problem.

Fortunately, he said, "Cooler and more reasonable heads are prevailing."

After all, he continued, nobody really wants to see an entire region's farming population wiped out.

In instances where he can, Igo said he is rolling unfillable contracts into 2012. Some businesses, though, cannot afford to roll things over because they have to have the corn themselves.

Barry Evans, who farms in Swisher County and also owns Evans Grain in Kress, said he didn't contract a lot of corn this year, but he has heard a lot of concerns from those who did.

In keeping with the theme, he said, this has been a year when nothing has worked the way it was supposed to.